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of the deposit may find the owner unable to claim his full allowance before the property is exhausted.

Allowance on Each Separate Deposit. Where a taxpayer owns more than one mining property allowance may be computed for each separate mine or deposit, and the aggregate of such computations constitutes the allowance to which he is entitled.

Statement to Be Attached to Annual Return. Where depletion is claimed under the above rules there should be attached to the return of annual net income of the claimant a statement setting out whether the operator is a fee owner or a lessee; in the case of a fee owner, (a) the fair market value of the mineral deposits as of March 1, 1913, if the property was acquired prior to that date, (b) the cost of the mineral property if acquired subsequent to that date; the method by which the value as of March 1, 1913, was determined in case the property was acquired prior to that date; the estimated quantity in units in the mine as of March 1, 1913, or at the date of purchase, if acquired subsequent to that date; the number of units removed and sold during the year for which the return is made; and any other data which would be helpful in determining the reasonableness of the depletion deduction claimed in the return. In the case of a lessee, the statement should show (a) the amount of the bonus or other payment made for the right to operate the mine; (b) the period covered by the lease. 11

Rule Under the 1913 Law. The 1913 Law provided for an arbitrary deduction in the case of an individual or corporation for the depletion of mining deposits, not to exceed 5% of the gross value at the mine of the output for the year for which the computation was made 12 Under this law it was held that taxpayers operating mines or oil or gas wells upon a royalty only, could not claim depreciation because of the exhaustion of the deposit.13 It was also held that in order to claim a deduction for depletion the amount of such deduction had to be charged off on the books so as to constitute a liability against the assets of the taxpayer. A general ledger entry was required so that the amount charged off would be reflected in the annual balance sheet.14 It was later held however, that failure to write off depletion would not result in disallowing the deduction. 15

11 T. D. 2446.

Rule Under the 1909 Law. Under the 1909 Law the Treasury Department allowed a deduction for depletion on the unit value basis, 16 although the law was silent. When a case involving the question came before the Supreme Court it was held that the fact that the revenues derived from operating mines resulted to some extent in exhaustion of the capital, established, under that law, no ground for deducting the value of the ore from the gross income as depreciation,17 and, further, that Congress did not intend to cover the necessary depreciation of a mine, by exhaustion of the ores, in determining the income to be assessed under the statute,

12 Act of October 3, 1913 | B and | G (b). 13 Reg. 33, Art. 145.

14 Letter from Treasury Department dated May 18, 1916; I. T. S. 1917, 11428.

15 T. D. 2481. 16 T. D. 1675.

17 Stratton's Independence Ltd. v. Howbert, 231 U. S. 339, Sup. Ct. 136; 58 L. Ed. 285.

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by including such exhaustion within the allowance for depreciation.18 In a later case, decided in a lower court, these decisions were held not to apply to a company mining ore by stripping off the surface covering the deposit, the court being of the opinion that where a company could strip the surface from a deposit and thus definitely and certainly ascertain the extent or character thereof, or ascertain it by means of test pits, shafts and drilling from the surface, the owner or lessee could ascertain with certainty the value of his property on January 1, 1909, and deduct that value from each ton in ascertaining the net income under the 1909 Law.19

18 Von Baumbach v. Sargent Land Co., 242 U. S. 503. 19 Biwabik Mining Co. v. U. S., 242 Fed. 9.

CHAPTER 35

RETURN OF ANNUAL NET INCOME

For the purpose of assessing the tax, a return of annual net income is required, showing the gross and net income for the taxable year. This chapter deals with the general provisions relating to returns of annual net income, and does not cover the annual or special returns required with respect to withholding at the source, information at the source or other matters. For a discussion of such returns attention is directed to the chapters on the respective subjects.

By Whom Filed. The law requires the return of annual net income to be filed by each person of lawful age having a net income of $1,000 or over for the calendar year, if the individual is unmarried, and $2,000 or over if the individual is married.1 Guardians, trustees, executors, administrators, receivers and other fiduciaries are required to make a return if the income of beneficiaries is $1,000 or $2,000 as indicated above, and as to undistributed income, it seems that a return is required when such income is $1,000 or over for the taxable year.2 Minors and incompetents are not required to file returns but their fiduciaries are required to file returns for them. A return is required from every corporation subject to the tax regardless of whether or not it has been in receipt of any income during the taxable year. The term “taxable year” as here used means the calendar year, except in cases where a corporation has designated its fiscal year as such.

1 Act of September 8, 1916, § 8 (b), provides for the filing of returns by persons of lawful age having a net income of $3,000 or over for the taxable year but this provision is superseded by the Act of October 3, 1917, § 3, which requires a return to be filed under conditions indicated in the context. The 1917 Law will govern the filing of returns until it is repealed or amended. As to non-resident aliens, see Chapter 5.

HUSBAND AND WIFE. If a husband and wife, living together, have separate estates, the income from both may be reported in one return, but the amount of income of each, and the full name and address of both, must be shown in such return. Ordinarily, the husband, as the head and legal representative of the household, and general custodian of its income, should make and render the return of the aggregate income of himself and his wife. If, however, the wife does not disclose her income to the husband, each may make a return, in which case the personal exemption may be divided between the two in such proportions as they agree upon. If either husband or wife separately has an income equal to or in excess of $2,000 a return is required under the law. If the aggregate income of both is $2,000 or more, the Treasury De

2 Act of September 8, 1916, § 8 (c), as amended by Act of October 3, 1917, requires no return of net income not exceeding $3,000, but this provision is superseded by $ 3, Act of October 3, 1917. The law is obscure as to returns of undistributed net income of trust estates, but as the specific exemption under the 1917 Law is only $1,000, a return will no doubt be required if such income exceeds that amount.

3 Act of September 8, 1916, § 13 (a).

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